Friday, January 28, 2011

28/01/2011: Eurcoin January 2011

The latest Eurocoin leading indicator for growth in the Eurozone is out and it is a mixed bag.

From the headline figure level, Eurocoin declined marginally from 0.49 in December to 0.48% in January. Both levels are largely consistent with 2% annualized rate of growth. This, of course is an improvement on Q3 2010 and suggests that growth remains relatively robust (by Euro area standards).
However, a worrisome feature of the latest reading is that it was supported by the confidence surveys, rather than by the real activity.

Industrial production growth rate remained basically constant across the Euroarea in the latest data (up to November 2010 and for the three consecutive months), driven by stable growth in German production, decline in Spain and stagnant Italian production. France posted a slight increase.

Business confidence as measured by the EU Commission surveys boomed in Germany and posted a robust rise in France, slightly offset by negative, but negligibly slowing confidence in Italy and the robust negativity in Spain. This marked the fifth consecutive month of business confidence moving well above the PMI-signaled confidence indicators.

In contrast, consumers were getting gloomier in France, Spain and Italy, while showing robust optimism in Germany.

So overall, a mixed bag, with leading growth indicator signaling growth slightly ahead of the IMF forecasts. Which means I am now leaning toward seeing 0.48-0.5% qoq growth in Q1 2011 - annualized rate of 2.00-2.01%

Thursday, January 27, 2011

27/01/2011: Gold - an interesting chart

Few interesting charts on gold for 2010 - all courtesy of the GoldCore.

The above, of course, highlights the relative power of gold as risk-diversification instrument. Gold price volatility was 16% on an annualised basis in 2010 which is consistent with long-term trend. At the same time, volatility on S&P GSCI daily returns was 21% annualized. Given that GSCI is a broad commodities index, 's worth taking a look at relative returns: Gold price rose by 29% in 2010, S&P GSCI rose 20%, S&P 500 +13%, MSCI World ex US Index +6% in USD terms, Barclays US Treasuries Agg +6%. Now, note that the only less volatile commodity instrument is non-storable livestock.

If you want an in-depth view of hedging and flight-to-safety properties of gold - go here. Alternatively, for a more popular view: see the video here.

27/01/2011: Retail sales for December 2010

Retail sales stats are in. Given the weather conditions in December, the Budget 2011 pillaging the pockets of consumers, remaining uncertainty in the economy, and tanking consumer confidence (see here) it was not surprising to see the end results for the sales in December 2010.

Per CSO: “The volume of retail sales (i.e. excluding price effects) decreased by 3.1% in December 2010 when compared with December 2009 and there was a monthly decrease of 1.1%.” Worse than that: ex-Motor Trades, the volume of retail sales fell by 3.6% yoy in December 2010, and 2.5%mom.

  • Motor Trades (-8.0%)
  • Fuel (-21.7%)
  • Furniture and Lighting (-21.5)
  • Bars (-9.9%)
were “amongst the ten categories that showed year-on-year decreases in the volume of retail of retail sales this month”.

The value of retail sales has suffered even more than the volumes (and remember – it’s the value, not the volume that supports jobs in the sector) contracting by 4.1% yoy in December 2010 and falling 0.9% mom. Ex-Motor Trades annual decrease was 3.3% in the value and a monthly decrease of 1.3%.

Further per CSO: "Provisional estimates are now available for the final quarter of 2010… the volume of retail sales decreased by 0.6% year on year in Q4, with the value decreasing by 2.1%. If Motor Trades are excluded the volume of retail sales decreased by 1.8% year on year in the final quarter of 2010 and the value of retail sales decreased by 2.4%."

Let’s add to that the following observation: since 2007 through the end of 2010 Irish retail sales fell 23.3% in value and 18.6% in volume.

Weather effects, that undoubtedly contributed to the declines in retail activity in December should not give us comfort going into 2011. The trends in both RSI and Consumer Confidence are less than encouraging. But one does need to take into perspective that, for example, a massive decline in fuel (due to transport disruptions during the snow periods) and declines in 'Other' categories - mobiles, toys, jewelery etc - and clothing, footware & textiles clearly inidcate the disruptive nature of December weather.

27/01/2011: External trade (goods)

Latest data for Ireland's external trade in goods was released yesterday, showing another month of spectacular trade balance performance in Ireland, albeit with a slight easing in month-on-month activity.
The value of exports in November 2010 rose robust 17% year on year while the value of imports
was up by 2%. The trade surplus increased by a spectacular 37% to €4,086mln, marking a third consecutive month when the trade surplus exceeded €4bn. However, seasonally adjusted exports fell 1% in November mom, as did imports, leaving seasonally adjusted trade balance virtually unchanged.

The main drivers of trade balance in the first 10 months of 2010, compared against the same
period of 2009 were:
  • Medical and pharmaceutical products exports rose 15% or €2,705mln, while imports were down 21%
  • Organic chemicals exports up 3% or €429mln.
  • Computer equipment exports fell 32% or -€1,724mln, while imports declined 31% or €994mln
  • Other transport equipment (inc aircraft) exports fell by 70% or €458mln, but imports fell 31% or -€1,069mln.
  • Imports of Petroleum fell 34%,
  • Imports of Road vehicles declined by 74%
Now to updated charts showing the above dynamics:
Headline series show two trends - a relatively flat trend (though down-sloping slightly) in exports and a robustly negative trend in imports. Exports and imports in the short run are still performing above the trend and the persistence of performance suggests that the trend is likely to reverse onto positive in exports and flatten out in imports. While continuing to signal strong performance in trade surplus, the trend suggests that future growth in trade balance might be moderating in months to come.

Chart above clearly highlights an emerging problem of deteriorating terms of trade (ratio of exports prices to imports prices). This process has been on-going and is now starting to present a major headwind for exporters.

That said, due to a heavy exposure of our trade to MNCs, volumes of trade have little relationship with the short and medium term pressures on terms of trade:The above suggests that the headwinds will be strongly felt by domestic exporters.

A summary of cumulative changes in exports and trade surplus in 2010 relative to 2007:

Notice weakening performance (relative to pre-crisis conditions) in October and November - something to watch.

Tuesday, January 25, 2011

25/01/2011: Just how independent is the EU's Systemic Risk Board

On January 20 there was a momentous occasion in Europe. After years of crisis, bent on preventing another financial meltdown in the future, the EU unveiled the first sitting of the new super-regulatory/supervisory body - the European Systemic Risk Board.

Here is the press release from the EU official site with emphasis and comments added by me:

"The General Board of the European Systemic Risk Board (ESRB) held its inaugural meeting today at the European Central Bank (ECB) in Frankfurt am Main. The meeting led to a number of decisions on the set-up and functioning of the Board:
  • Mr Marek Belka, Governor of the Narodowy Bank Polski; Mr Mario Draghi, Governor of the Banca d’Italia; Mr Athanasios Orphanides, Governor of the Central Bank of Cyprus; Mr Axel Weber, President of the Deutsche Bundesbank; were elected members of the Steering Committee for three years. [Note that all members of the Steering Committee are Central Bankers, hence not independent from the ECB]

  • Mr Stefan Ingves, Governor of the Sveriges Riksbank was elected Chair of the Advisory Technical Committee for three years. [Again the above comment applies]

The ESRB is an independent EU body responsible for the macro-prudential oversight of the financial system within the Union. The ESRB is located in Frankfurt am Main and its Secretariat is provided by the European Central Bank.

The Chair of the ESRB is the President of the European Central Bank, Mr Jean-Claude Trichet. The first Vice-Chair of the ESRB is Mr Mervyn King, Governor of the Bank of England. He was elected by the members of the General Council of the ECB on 16 December 2010 for five years. The second Vice-Chair of the ESRB will be the Chair of the Joint Committee of the European Supervisory Authorities.

The General Board consists of the following members with voting rights: the President and the Vice-President of the European Central Bank (ECB); the Governors of the national central banks of the EU Member States; one member of the European Commission; the Chairperson of the European Banking Authority (EBA); the Chairperson of the European Insurance and Occupational Pensions Authority (EIOPA); the Chairperson of the European Securities and Markets Authority (ESMA); the Chair and the two Vice-Chairs of the Advisory Scientific Committee (ASC); the Chair of the Advisory Technical Committee (ATC). The following members have no voting rights: one high-level representative per Member State of the competent national supervisory authorities; and the President of the Economic and Financial Committee (EFC)." (end quote)

So in a summary: the ESRB is composed of:

  • National CBs and supervisory authorities (subject to ECB control)
  • ECB members
  • EU Commission representatives
  • EU industry quangoes
And this is called 'independent'?

Saturday, January 15, 2011

15/01/2011: Austerity and structural deficits

In recent days, there have been some questioning responses to a series of posts I did earlier this month on Irish Exchequer results for 2010. In particular, some queried my concerns with the long-term deficits and the dynamics of Irish Exchequer deficit.

Well, here's an EU official confirmation of my analysis: "As displayed in Graph 12, the distance of the deficit – corrected for the business cycle and one-off measures, i.e. structural deficit – from the medium-term budgetary objective (MTO) is particularly large (more than five percentage points of GDP) in twelve Member States." (from Brussels, 12.1.2011 COM(2011): GROWTH SURVEY, ANNEX 2, MACRO-ECONOMIC REPORT)

As the chart below clearly shows - Ireland's structural - recession effects-adjusted - deficits are in the league of their own:
Austerity, folks, or not - we are still living beyond our means when it comes to public expenditure. And when it comes to our austerity metrics (the blue bar), it is clear that much more remains to be done and that the worst Budget is yet to come.

15/01/2011: EU's claim to fame in 2010

I promised some time ago to post on EU's marvelous youtube video (here) which talks about all the things that the EU allegedly did for its citizens in 2010 (hat tip to the

As you would notice - watching the official video - there some pretty good things that the EU delivered in 2010, although many of these, such as the EU work in the areas of justice are long running themes. But one cannot avoid several absolutely ludicrous claims.

Here's the biggest whooper:
One doesn't need a PhD in Finance or Economics to understand that 2010 was the year of:
  • Jobless and anemic recoveries across a number of EU states;
  • Continued recession across a number of other EU states;
  • Acute and still ongoing crisis in sovereign debt markets; and
  • Virtually EU-wide austerity marking the unsustainable nature of European economic model
Actually, one only needs to read through EU-own flagship policy document from 2010 - Europe 2020 (here) - to see that (quoting from the preamble):
"2010 must mark a new beginning... The last two years have left millions unemployed. It has brought a burden of debt that will last for many years. It has brought new pressures on our social cohesion. It has also exposed some fundamental truths about the challenges that the European economy faces. And in the meantime, the global economy is moving forward... The crisis is a wake-up call, the moment where we recognise that "business as usual" would consign us to a gradual decline, to the second rank of the new global order. This is Europe's moment of truth."

So if anything, per EU own admission, the crisis is not over and for EU, the wake-up call from the crisis is yet to arrive. Note that what Europe 2020 refers to the 'moment we recognize the business as usual would consign us to a gradual decline' as timed beyond June 2011 when the Commission expects European Parliament's and Member States approval of its agenda.

But here's EU Commission own assessment of EU's progression toward 'securing a sound economy' - quoting directly from Europe 2020:

  • Europe's average growth rate has been structurally lower than that of our main economic partners, largely due to a productivity gap that has widened over the last decade. Much of this is due to differences in business structures combined with lower levels of investment in R&D and innovation, insufficient use of information and communications technologies, reluctance in some parts of our societies to embrace innovation, barriers to market access and a less dynamic business environment.
  • In spite of progress, Europe's employment rates – at 69% on average for those aged 20-64 – are still significantly lower than in other parts of the world. Only 63% of women are in work compared to 76% of men. Only 46% of older workers (55-64) are employed compared to over 62% in the US and Japan. Moreover, on average Europeans work 10% fewer hours than their US or Japanese counterparts.
  • Demographic ageing is accelerating. As the baby-boom generation retires, the EU's active population will start to shrink as from 2013/2014. The number of people aged over 60 is now increasing twice as fast as it did before 2007 – by about two million every year compared to one million previously. The combination of a smaller working population and a higher share of retired people will place additional strains on our welfare systems.
So no sight of 'secured sound economy' in sight here. And as far as financial markets go, here is an article summarizing the four scenarios for the Euro that FT Deutschland published last month. You judge if having any one of the four outlined by the FT:
  • Continued crisis, or
  • A de jure and de facto two speed Europe, or
  • A break up of the EU into two blocks precipitated by a Lehmans-like event in European sovereign debt markets, or
  • A total collapse of the Euro
constitute a 'secured stronger financial market'.

Now on to the second most outlandish claim made in the video:
The very same - yet to be fully approved and implemented - Europe 2020 agenda is focused heavily on the need to:
  • create new jobs and
  • boost small businesses
If this was already achieved by the EU in 2010 as Commission video claims, why, may I ask, should the EU worry enough about these objectives to plan to deliver on them by 2020?

Here's what Europe 2020 says: "Europe must act:
  • Employment: Due to demographic change, our workforce is about to shrink. Only two-thirds of our working age population is currently employed, compared to over 70% in the US and Japan. The employment rate of women and older workers are particularly low. Young people have been severely hit by the crisis, with an unemployment rate over 21%. There is a strong risk that people away or poorly attached to the world of work lose ground from the labour market.
  • Skills: About 80 million people have low or basic skills, but lifelong learning benefits mostly the more educated. By 2020, 16 million more jobs will require high qualifications, while the demand for low skills will drop by 12 million jobs. Achieving longer working lives will also require the possibility to acquire and develop new skills throughout the lifetime
Does the above quote suggest that in 2010 the EU has 'created new jobs'? Not really.

Here's Eurostat's latest data release: "The euro area (EA16) seasonally-adjusted unemployment rate3 was 10.1% in November 2010, unchanged compared with October. It was 9.9% in November 2009. The EU27 unemployment rate was 9.6% in November 2010, unchanged compared with October. It was 9.4% in November 2009." So recap - through November, 2010 marked a yar of rising unemployment across the EU and the Euro zone. What 'new jobs created'?

Eurostat puts some more real numbers on the EU claim: "Eurostat estimates that 23.248 million men and women in the EU27, of whom 15.924 million were in the euro area, were unemployed in November 2010. Compared with November 2009, unemployment rose by 606 000 in the EU27 and by 347 000 in the euro area." So year on year, some 606,000 jobs were destroyed on the net across Europe, not 'new jobs created'.

Here's the chart:
But may be, just may be the EU did deliver on some other economic performance indicator in 2010?

How about inflation? Eurostat again: "Euro area annual inflation was 2.2% in December 20102, up from 1.9% in November. A year earlier the rate was 0.9%. EU annual inflation was 2.6% in December 2010, up from 2.3% in November. A year earlier the rate was 1.5%." Oops.

External trade? Eurostat nails it: "The first estimate for the November 2010 extra-EU27 trade balance was a €14.7 bn deficit, compared with -7.3 bn in November 2009 [worsening deficit on trade account year on year]. [and also worsening trade account month on month] In October 2010 the balance was -7.9 bn, compared with -6.4 bn in October 2009. In November 2010 compared with October 2010, seasonally adjusted exports rose by 0.3% and imports by 6.1%."

But wait - what about growth? Eurostat: "In comparison with the same quarter of the previous year, seasonally adjusted GDP rose in the third quarter 2010 by 1.9% in the euro area and by 2.2% in the EU27, after +2.0% in both zones in the second quarter." So yes, growth returned, but it was extremely anemic and what's worse - in the Euro area it has deteriorated in Q3 2010 relative to Q2 2010. At any rate, the Commission can't relaly make any claims about 2010 growth because the numbers for Q4 are not in yet and Q3 numbers are still provisional.

"Stop", you shout - "they made a claim about small businesses boost - address that!" Can't and neither can the EU Commission, since
Notice that the database for SMEs page was last updated by the Eurostat on 14.10.2010. And that's despite EU Commission setting strategic priority in early 2010 to significantly increase growth amongst SMEs in 2011-2020.

In other words, the EU's claim of boosting small business in 2010 is, folks, non-falsifiable, or translated from the philosophy of science language - pure fiction.

As an indicator strongly instrumental for SMEs, let's take a look at entrepreneurship. Here is a useful link to OECD analysis, conducted jointly with Eurostat.

Couple of charts from November 2010 OECD publication on the topic (notice these cover data through Q2 2010):
Clearly, with exception of the UK and Denmark, no EU country posted an increase in entrepreneurship rates in 2010.

And for the laughs, here's No Comment claim to EU fame
Now, we are truly saved!

15/01/2011: Capex in Irish Industry

Capital acquisitions in industry in the third quarter of 2010 were €572.0m, compared with €735.6m in the third quarter of 2009 per CSO's latest data released this week. The main contributors to capital acquisitions were sectors:

  • Food products with €69.2m.
  • Pharmaceutical products and preparations with €49.3m.
  • Other Manufacturing with €38.5m.

In 2009, the main contributors to capital acquisitions were:

  • Basic pharmaceutical products and preparations €581.1mln
  • Food Products €264.5mln
  • Machinery and equipment n.e.c. €258.5mln

Total acquisitions in 2009 were €3126.4mln and Q1-Q3 2009 total was €2,438.9mln against €1,577.1mln for Q1-Q3 in 2010, implying a decline of 35.3% yoy.Clearly, no investment / capex restart anywhere in sight:

15/01/2011: Consumer Sentiment in Ireland

Per this week's data release by the ESRI, Irish consumer confidence suffered another set back in December 2010 - updated chart:
Overall, Consumer Sentiment Index declined to 44.4 in December from 48.4 in November, and relative to 53.3 in December 2009. The November reading remains above the all time low in July 2008 of 39., but way below 67.9 local peak achieved back in July last year.

The decline in index was across the board with
  • a strongly negative move in the Index of Current Conditions - to 68.5 in December, compared with 76.6 in November, and
  • Expectations index staying at 28.1, down from 29.4 in November.
According to the ESRI: “The majority, over 70 per cent [would have been nice to put an exact number here, but what can you expect - it's ESRI], of reported that their finances had worsened rather than improved during the past year.”

All thanks for that to Leni & Co for spectacularly reducing middle class' disposable incomes to bail out systemically unimportant banks and public sector elites.

15/01/2011: Family and siblings achievements

Correlations in achievement between siblings in general reflect the impact of family and community on individual outcomes. More importantly, since the siblings achievements are contemporaneous, these correlations can tell us much more about social and family effects than intergenerational correlations, since the latter effects are clearly a function of constantly changing circumstances.

An interesting paper from Swedish researchers (What More Than Parental Income, Education and Occupation? An Exploration of What Swedish Siblings Get from Their Parents, by Anders Björklund, Lena Lindahl, and Matthew J. Lindquist – available here) looked at the determinants of siblings performance in terms of future earned income.

Estimates of such siblings-linked correlations in income, per Björklund et al show that more than half of the family and community influences shared by siblings are independent of parental income. This is a powerful result as it suggests that:

  • within-family and within-social group factors determining the outcomes for siblings are more important than much-talked about income poverty; and
  • positive effects of the family on raising children can potentially partially (but with strong effect) offset adverse effects of income poverty.

“Measures of family structure and social problems account for very little of sibling similarities beyond that already accounted for by income, education and occupation.” In other words, it appears that the measured aimed at directly influencing the actual form of the family structure (a traditionalist family focus etc) and the core social welfare policy instruments (policies aimed at alleviating social disadvantages) hold little promise in enhancing future performance of children beyond the already recognized income and education components.

Unless, that is, these policies are incentivising more parental inputs into raising children: “…when we add indicators of parental involvement in schoolwork, parenting practices and maternal attitudes, the explanatory power of our variables increases from about one-quarter (using only traditional measures of parents’ socio-economic status) to nearly two-thirds.”

Sunday, January 9, 2011

09/01/2011: Exchequer returns - Part 6

This is the sixth post on Exchequer returns for 2010 (previous parts are here: part 1, part 2, part 3, part 4 and part 5).

This time around, I am going to take a closer look at the incidence of taxation across various tax heads and agents of economy.

During the year, I have been consistently highlighting the problem of rising burden of taxation for the households - the core agency of any economy. In particular, the rising burden of income taxation. Here are two charts - one comparing 2007-2010 at H1 end and another comparing same years at year end:

Table below summarizes:
Interestingly, Minister Lenihan in his address relating to the release of December returns has gone out of his way to highlight two things:
  • Increase in corporate tax returns, and
  • Decrease in income tax returns
Minister Lenihan would be better served if he were to look at the 2007-2010 comparatives, which clearly show that his Government's policies have shifted massive new burden for carrying public expenditure onto the shoulders of ever-shrinking (remember latest Live Register results?) pool of working households. At the same time, corporate tax contributions to overall tax receipts have declined on 2007 (albeit insignificantly).

Let's highlight this for him, taking into account that both businesses and households are paying more than just corporate and income taxes:

No comment needed!

09/01/2011: Exchequer returns - Part 5

In a follow up to the previous 4 posts on Exchequer returns (part 1, part 2, part 3 and part 4), let me update my own earlier charts on receipts to cover 2007-2010 horizon. There are some striking comparatives to had out of these.

First by tax head:

Now, totals
And now, let's carry out two exercises. First, consider changes year on year and over 2007-2010 horizon:
The second exercise is in the bottom section of the table above. Suppose we fix tax revenues at the levels of 2007 (case 1) and at 85% of 2007 (case 2) levels. The choice for 85% is warranted as it roughly speaking represents a 50% moderation in housing price growth activity on 2005-2007 - not a housing recession, but slower rate of growth. In other words, this is equilibrium effect. What would have been the Exchequer shortfall in funding given the path of expenditure taken by the Government over 2007-2010?

As shown above, between 2008 and 2010 the Government would have to cut expenditure by some €10.3 billion in order to bring fiscal balance to the receipts fixed annually at 85% of 2007 levels. And these are net cuts! Alternatively, only €13 billion of the total cumulative 2008-2010 deficits of €49.1 billion can be accounted for by a decline in tax revenue below equilibrium level. The rest, my friends, is due to over-spending...

Saturday, January 8, 2011

08/01/2011: Exchequer returns - part 4

Corrected - hat tip for an error to Seamus Coffey.

In Part 1 of the post on 2010 Exchequer returns I looked at a couple of headline points relating to the issue of Ireland's fiscal policy performance in 2010 (here). Part 2 of the post dealt with my forecasts and longer term analysis of fiscal environment in Ireland (here). Part 3 focused on the expenditure side of the Government balancesheet (here).

In this part, let's tackle the issues relating to tax receipts.

Again, the main headline picture first:

As the chart above clearly shows, the idea of 'stabilizing' tax revenue relates to the Government view that replicating previous year performance - albeit at a slightly lower levels - is somehow a good thing.

Amazingly, 2010 absolute underperformance of the already abysmal 2009 comes after a host of tax hikes and levies introductions by the Budgets 2009 and 2010. Minister Lenihan has been pushing ever increasing tax burden onto the Irish economy, while getting less and less revenue in return.

Relative to 2009 and 2008:
  • Income tax was down 4.72% and 14.43% respectively
  • VAT is down 5.33% and 24.79% respectively
  • Corporate tax - the one Minister Lenihan has been singing praises about this week - is up 0.606% on 2009, but down a massive 22.55% on 2008
Here are few charts by main tax heads:

Of course, given investment and housing markets performance, stamps, CGT, CAT etc are showing continued strain as well:

Of course, CGT is a reflection of economy's performance on investment side. Here, there is clearly no recovery in sight.

Dynamics year on year:

All of which means that year on year performance is now 'stabilizing' around 2009 dynamics. Again, one might say the glass is 1/10th full (things are not getting much worse than 2009) or 9/10ths empty (things are not getting any better).

One thing that remains stable throughout the crisis is Government's determination to load the burden of fiscal adjustment onto ordinary taxpayers:

Table below summarizes the above point:

And, for conclusion, let's indulge in the Government's own fetish of focusing on performance relative to target (not that there is much of an economic meaning to this):

Thursday, January 6, 2011

06/01/2011: Exchequer Returns - part 3

In parts 1 and 2 (here and here) I've dealt with some longer term issues relating to the general Exchequer performance figures. In the following two posts I will update specific expenditure (current post) and tax receipts (next post) data.

First, total expenditure:
Two things worth noting here:
  • Up until November, total spending side of Exchequer returns was performing relatively strongly, with year on year savings of 4.22%. These savings were significantly reduced in December, with full year savings performance of just 1.55% on 2009.
  • The reductions in 2010 have been achieved solely on the back of capital expenditure cuts. Year on year, current spending rose by €261mln or 0.6% in 2010, while capital spending was cut by 14.3% or €990mln
You can see the dynamics of reductions over the year in the following two charts:
Combined savings by each department head per quarter end:
Feel free to interpret the above, but what interested me much more is just how stable are the Government's spending priorities over time. To see this, I plotted annual shares of each department head as a percentage of total spend (note - this exercise is not a perfect comparison as departments' responsibilities have changed over time).
The chart above suggests strongly to me that the Government, despite all the criticism it deserves in managing the crisis, has so far elected to cut largely discretionary spending. This is a rational response to the early stages of the crisis, but it is clearly insufficient to deliver stabilization of public finances, let alone their restoration to health.